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- How Do I Plan For Inheritance Tax?

- How Do I Plan For Inheritance Tax?

August 15, 2022

When you pass away, the estate you leave behind could be subject to estate or inheritance taxes. Unless your estate is worth over $12.06 million (in 2022), you will not be subject to federal estate taxes. However, your estate can be subjected to state-level estate taxes and/or inheritance taxes. If you don’t plan ahead for estate and inheritance taxes, you could be leaving your loved ones in a sticky situation. Continue reading to learn about planning for inheritance tax.


Before planning for inheritance tax, it's important to know what taxes you will need to plan for. Many states do not have estate taxes, which are taxes imposed on your estate, or inheritance taxes, which are levied on the beneficiaries of your estate. When referring to inheritance taxes, many are referring to a group of three different types of taxes: inheritance tax, capital gains tax, and estate tax.


Inheritance taxes are imposed on a state level and there are only six states in the United States that apply these taxes. Each state of the six have their own threshold that your inheritance has to be above to be taxed. Also, immediate family members are normally exempt from paying inheritance taxes. The tax rate is a sliding scale ranging from 5% to 15%.


Capital gains taxes are federal and state-regulated taxes. If you inherited an asset, you would only be taxed on the difference between the value of the asset when you inherited it and the price you sold the asset at. Federal capital gains taxes are a sliding scale based on your income tax bracket. The average state capital state tax is 29%.


As stated, estate taxes are only imposed on large estates, such as estates over $12.06 million. However, estate taxes can be imposed on a federal and state level, with states having a different threshold level. This form of taxes needs to be paid prior to any disbursements being made of the estate.


Now onto several ways to plan for inheritance tax.

1. Consider putting your assets into a trust

If you are planning on passing your assets on to your loved ones after you pass, place your assets into a trust. You will transfer ownership to a trust, which works hand in hand with a will, to prevent assets from being given to an individual. A trust will prevent your assets from having to go through probate court, which will prevent costly fees.

2. Set up charitable donations

Donations can lower your tax liability, including estate taxes. You can give up to $16,000 a year in charitable donations without paying the gift tax. If you go above that threshold, you will then have to file a gift tax return in tax season.

 3. Own A Life Insurance Policy

The proceeds of a life insurance policy are income tax-free on the federal side when they are paid out to the designated beneficiary. If you have placed your life insurance policy proceeds as a part of your estate, it could push your total estate amount over the thresholds for estate taxes. To prevent that, transfer ownership of your policy to your beneficiary.


You can never start planning your estate too early, including the tax liability. If you need assistance planning for inheritance tax, our advisors at Curo Private Wealth are happy to help. We can help you pick the most beneficial tax and estate strategies based on our knowledge and expertise. Schedule a consultation with us today to get started.